P&G confident its brands can deliver profit amid rising costs

Procter and Gamble (P&G), typically the world’s largest advertiser, insists its brands are built solidly enough that its customers will continue to choose them as the global cost-of-living rises.

Why it matters

Arguably, major fast-moving consumer goods (FMCG) firms like P&G are advertising companies first-and-foremost. It’s rare that it will make a shampoo or chocolate bar that is radically different from its competitive set. Instead, they rely on building brands whose superiority is assumed, mostly on the strength of marketing activities.

Results in brief

P&G’s Q2 (October-December) results included highlights in home, health, and hygiene.

• Organic sales up 6% year-on-year, driven by large average price increases since 2019.
• Strong segments: Healthcare up 8% and fabric & home care up 7%.
• Slower growth in beauty and grooming, up 3% and 4%, respectively.
• Operating margin down on higher commodity costs, transportation and supply-chain.
• Price increases are set to continue throughout the year, but the company expects improved profitability in coming quarters.

The meaning of superiority

P&G has performed consistently during the pandemic, with demand maintained throughout global lockdowns and reopenings. Some of this can be put down to the company’s so-called “Superior Strategy”, credited with a strong FY21.

P&G’s formulation for “superior communications”, according to its annual report, centres around messaging that “must create awareness, demonstrate superior performance, and create the desire to purchase”. A 12% rise in adspend over the year to reach $8.2 billion didn’t hurt either.

This continues, even as economic conditions worsen. “Superiority does not mean that we're trying to trade up the consumer or trying to innovate only at the top end of the portfolio,” CFO Andre Schulten told Investors.

“Superiority is defined as Superiority at each price tier to the competing.”

Key quote

“We've made investments to strengthen the health and competitiveness of our brands across innovation, supply chains and brand equity. And we'll continue to invest to extend our margin of advantage and quality of execution, improving solutions for consumers around the world” – Andre Schulten, CFO, Procter & Gamble.

Sourced from P&G, WARC, Seeking Alpha